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Wednesday, April 20, 2016

Higher markets as oil vaults to $43

Dow jumped up 42, advancers over decliners a mere 4-3 & NAZ gained 7. The MLP index shot up another 5+ to the 295s (a new high for 2016) & the REIT index lost 5+ to the 336s. Junk bond funds were higher along with stocks & Treasuries retreated. Oil surged to the high 43s (see below) & gold slid back, taking it below 1250.

Oil climbed to the highest level in more than 4 months after a gov report showed US crude production dropped & futures
rose. Crude output fell to 8.95M barrels a day, the lowest since
Oct 2014, Energy Information Administration data show. Rigs
targeting oil in the US slipped to the least since Nov 2009. OPEC members & other producers plan to meet in Russia, possibly
in May, in a push to freeze output & support oil prices, Iraq’s Deputy
Oil Minister Fayyad Al-Nima said.

Russia doubts that there will be
a freeze deal in the foreseeable future. After the discussions in
Doha, the chances for a agreement are "relatively low," the Russian minister said. Crude
inventories climbed 2.08M barrels to 538M barrels last
week, the highest level since 1930. A 3M
barrel gain was projected before the
report. Supplies at Cushing, Oklahoma, the delivery point for WTI &
the nation's biggest oil-storage hub, dropped by 248K barrels. Refineries
bolstered operating rates by 0.2 percentage point to 89.4% of
capacity. US refiners typically increase utilization in Apr as they
finish maintenance before the summer peak driving season.

This rally smells. Something is not right. Oil production just below 9M barrels is about 5% below the record levels set a few months ago. That is not a big deal! Meanwhile, high inventories are not going away anytime soon. The rally in stocks was modest, although the market is vastly overbought, & breadth was limited. Today's oil rally is difficult to understand or believe. Dow is within 200 of setting a new record, but this is a very tired market with low expectations as earnings season begins.